Mnuchin: a friend of private markets

The Treasury Secretary will soon unveil the administration’s new tax plan, which is likely to keep the carry interest tax unchanged.

As Steven Mnuchin unveils the new US tax plan this week, Private Equity International takes a closer look at the Treasury secretary and the man behind Donald Trump’s attempt at the tax overhaul.

PE firms may be dodging a big bullet as the tax on carried interest will remained unchanged. Mnuchin recently said at a conference in New York that hedge funds will have their carried interest taxed as ordinary income, while carried interest for “other entities that create jobs”, such as private equity firms, will continue to be taxed as capital gains. The plan may also limit interest deductibility from taxable income, but it’s still unclear what kind of impact that will have on private equity firms.

After all, Mnuchin, who spent nearly 20 years at Goldman Sachs as a partner and most recently as its chief information officer, is highly familiar with private capital markets, particularly private real estate.

Before joining the Trump campaign last year, he co-founded Dune Capital Management in 2004 with Daniel Neidich and Chip Seelig, which invested in real estate and public equity markets.

Mnuchin focused more specifically on the real estate side of the business. In 2010, while the firm’s arm investing in equity was disbanded following the global financial crisis, the firm became Dune Real Estate Partners to manage the real estate assets and Mnuchin and Seelig departed.

Mnuchin continued to receive any carried interest earned by the firm’s first fund, according to documents on the firm prepared for State Universities Retirement System of Illinois.

Mnuchin sold his stakes in value-added fund Dune Real Estate Partners Fund II and Dune Real Estate Partners in May for at least $2 million each, according to a filing with Office of Government Ethics. He owned a 2.7 percent stake in Dune Real Estate Partners II, according to a March filing with the OGE.

He has also by now divested from his film financing firm Dune Entertainment and RatPac-Dune Entertainment, a partnership he co-founded in 2013. He has financed blockbuster movies including the Lego Movie, Godzilla and Wonder Woman.

Through his work, he understands private equity structures and the reliance on offshore jurisdictions to cater to limited partners for example, as his confirmation hearing testimony on 19 January shows.

Other than through private real estate investing—he’s worked on transactions including Trump and Colony Capital founder Tom Barrack—he’s also been connected to the investing world from a young age through his father.

Robert Mnuchin, also a former banker at Goldman Sachs, is an art collector and dealer. One head of investments at a large private equity firm, shortly after Mnuchin was nominated to the Treasury secretary role, noted that he had known the new cabinet member since he was a student at Yale University, through his father.

It remains to be seen what exactly comes out of the tax plan, but it seems that in Mnuchin, the private equity world has found a friend in the government.